Jan 19, 2017
Davos CEOs 'go local' on supply chain in Trump era
Jan 19, 2017
Business leaders in Davos, traditionally the high priests of globalisation, are talking up the benefits of local production this week to shield themselves from criticism from incoming U.S. President Donald Trump.
Elected on a jobs-focused "America First" platform, Trump has taken to Twitter to rebuke major companies like General Motors, Lockheed Martin and United Technologies, either for making goods in Mexico or for the price of their products.
At this week's World Economic Forum (WEF), a gathering of business and political elites in the Swiss Alps synonymous with free markets, company bosses said they were now preparing to adjust to the Trump era.
"The basic message is to be more national, don't just be global," Richard Edelman, CEO of communications marketing firm Edelman, told Reuters. "Let's try and pre-empt that tweet by having a long-term discussion about the supply chain."
General Motors on Tuesday highlighted moves it said would add nearly 2,000 U.S. manufacturing jobs, including a decision to shift some production of axles to an American factory, rather than have them supplied from Mexico. The automaker said it wanted to "build where we sell".
"There is no doubt we need to adapt," Carlos Ghosn, chief executive of Renault-Nissan, told Reuters. "All carmakers have to revise their strategy as a function of what is coming."
At the same time, companies are reviewing potential mergers and rethinking job cuts, fearing the stigma of being labeled "anti-American".
What companies have yet to spell out is the economic cost of such shifts or the extent of localization that will be needed to keep the peace with the new White House administration.
Adding to the incentive to increase U.S. manufacturing is the promise of lower corporate taxes under the Trump administration.
"It could mean increased investment in the U.S.," Novartis CEO Joe Jimenez told Reuters.
Vishal Sikka, chief executive of Infosys, which provides IT services to large companies including banks, said his company expected more business from helping companies localize.
"The irony is that when more walls show up it is a good opportunity for services companies to help do business across those walls," he said.
The move to go local in response to Trump looks set to fuel a trend already evident in some industries, including food and fashion, which are trying to tap into consumer demand for homegrown materials and production.
Other businesses are also thinking locally to mitigate currency risks in certain markets. Food companies in Britain, for example, which have seen their costs soar after sterling plummeted in the wake of the Brexit vote, have started moving towards local suppliers where possible to keep costs down.
In some cases, technological advances are helping by making it easier for companies to shorten their supply lines.
"With 3D printing, for example, some of the supply chain will reshore and come back to the local economies," said Frans van Houten, CEO of Dutch healthcare technology group Philips. "I think we will see supply chains becoming more regional."
Such tech-fueled localization may be a competitive advantage for multinational companies in a world of increasing geopolitical uncertainty, but it brings fresh challenges for developing economies which could lose out as jobs return to richer countries like the United States.
Martin Sorrell, chief executive of WPP, the world's largest advertising agency, said U.S. growth could come at the cost of nations elsewhere.
"The issue on Trump is what you win on the U.S. swings, you may lose on the international roundabouts," he said.
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